Roger Mullin: I beg to move amendment 3, in clause2,page2,line4,at end add—
“(3) The Chancellor shall assess the effect on taxation revenue of increasing the basic rate limit in line with the Consumer Prices Index for 2017-18 and by no more than increases in that index until 2021-22
It is a great pleasure, Sir Roger, to be with you again in this Public Bill Committee. Last year, I served on this very same Committee, and it led to one of the great interventions, which was of great assistance to me at the time. I hope that there is not the same occurrence this time. I can see that some hon. Members are rather confused; I will explain it to them later.

David Gauke: I am grateful to both hon. Gentlemen for the points raised on these measures, and I am grateful to the hon. Member for Kirkcaldy and Cowdenbeath for his strong support. He is absolutely right on the concerns of the overtaxing of ordinary savings. There hon. Member for Wolverhampton South West essentially raised two concerns—one about cliff edges and one about circumstances that could involve a substantial amount of income on which no tax is paid. My first point is that both circumstances are likely to be pretty unusual.
First, the allowance has been set at a level at which 95% of savers will not have tax to pay on their savings income, so the question of a cliff edge simply does not apply for the majority of savers. Had we not designed it in such a way, and had there been a differential treatment in terms of the size of allowance for higher rate taxpayers versus basic rate taxpayers, I suspect the Committee would criticise us for the fact that the largest beneficiaries, in terms of the cash benefit, would be higher rate taxpayers and not basic rate taxpayers.
The design of the personal savings allowance means that no one can gain by more than £200 a year, regardless of their circumstances, which is an important means  to ensuring that there is no disproportionate benefit to higher rate taxpayers. That is why there is a difference. Our concern is that trying to address the cliff-edge problem would add a degree of complexity to the tax system that would be unfortunate and disproportionate, given the nature of the issue that has been identified.
Secondly, I certainly do not deny that someone could have £22,000 of tax-free income with a combination of all the various policies in this area. That is absolutely true if we take into account the tax-free personal allowance, the starting rate for savings, the personal savings allowance and the dividend allowance. However, in reality that is an uncommon set of circumstances that we believe will be extremely rare. Again, it is not apparent to me how we could try to address that problem without adding considerable further complexity—for example, a system in which, if someone made use of one allowance, they could not use another allowance—and we would be rightly open to criticism for adding that unnecessary complexity to the system.
We are trying to end the distortive effects that we have had up to now, to come back to the comments of Professor Mirrlees and others on the effect of the existing taxation system on savings. That is why we have taken these decisions. I hope that that helps the Committee and that, notwithstanding the perfectly fair points made by the hon. Member for Wolverhampton South West, it will support these clauses.

David Gauke: Clause 6 separates the rates of income tax that apply to savings income from the main rates of income tax. These changes ensure that the Government meet their commitment to guaranteeing that MPs representing constituencies in England, Wales and Northern Ireland are given the decisive say on any income tax rates that affect only their constituents. As hon. and right hon. Members are aware, earlier this year, the Scotland Act 2016 received Royal Assent. It provides the Scottish Parliament with unprecedented powers over income tax, including the ability to determine the rates of income tax on earned income at the points at which those apply to Scottish taxpayers.
The fiscal framework agreed by the UK and Scottish Governments confirms that the powers will take effect in 2017-18. This means that from April 2017, Members of the Scottish Parliament will have the final say on Scottish income tax. As a matter of fairness, it is only right that, once these powers come into force, MPs in England, Wales and Northern Ireland are given the decisive say over rates of income tax that affect only their constituents.
The clause separates out the main rates of income tax into three distinct groups in order to meet this objective. The main rates will continue to apply to non-savings, non-dividends income, such as employment, pensions and property income, for taxpayers in England, Wales and Northern Ireland. The savings rates will apply to savings income of all UK taxpayers. The default rates will apply to a limited category of income tax payers who will not fall into either of these two categories; the category is made up primarily of non-residents and some trustee income. This will mean that, from April 2017, changes to the main rates of income tax will no longer affect Scottish taxpayers. Changes to the savings rates or default rates will continue to remain a reserved matter for the UK Government, in line with the recommendations of the Smith commission.
The clause will meet the Government’s commitment to ensuring that English votes for English laws applies to income tax. As a result, following the Finance Bill   2017, MPs representing constituencies in England, Wales and Northern Ireland will have a decisive say on the main rates of income tax that affect only their constituents.

Kirsty Blackman: I understand that the issue is whether or not a measure affects people in those areas, but will the Minister not concede that changes on income tax rates might have a knock-on effect, albeit indirect, on people in Scotland, particularly those who live round the borders?

With this it will be convenient to discuss whether schedule 4 should be the Fourth schedule to the Bill.

David Gauke: Clause 19, together with schedule 4, reduces the lifetime allowance from £1.25 million to £1 million from April 2016. This change will restrict the benefits of pensions tax relief for the wealthiest pension savers, ensuring that the pensions tax system is fair, manageable and affordable.
Pensions tax relief is one of the Government’s most expensive reliefs. In 2013-14, the Government spent or forwent revenue of more than £34 billion on income tax relief for pensions. That has increased from £17.6 billion in 2001. About two thirds of pensions tax relief currently goes to higher and additional rate taxpayers. In the last Parliament, we took steps to control that cost, in order  to ensure that pensions tax relief is appropriately targeted. This clause takes further significant steps to help us to achieve that.
As I have said, the changes made by clause 19 will reduce the lifetime allowance from £1.25 million to £1 million. As I have also said, the lifetime allowance is the maximum amount of tax relief on pension savings that an individual can build up over a lifetime. Only 4% of individuals who are currently approaching retirement have a pension pot worth more than £1 million; reducing the allowance will make sure that the wealthiest pension savers do not receive a disproportionate benefit from the pensions tax system. However, it would be unfair for the lifetime allowance to be eroded by future inflation, so the clause also makes provision for the lifetime allowance to be uprated in line with the CPI from 2018, which will maintain fairness between those retiring this year and those retiring in the future.
Clause 19 also introduces two transitional protection schemes for those affected by the reduction of the lifetime allowance. These will protect individuals who have saved on the basis that the lifetime allowance would be at least £1.25 million, who have UK tax-relieved pension rights of more than £1 million, or who think that they will have rights of more than £1 million by the time they come to take their pension benefits. Two types of protection are available: fixed protection 2016 and individual protection 2016.
The details of the protection regimes are set out in schedule 4. Individuals applying for fixed protection 2016 will have their lifetime allowance protected at £1.25 million after 5 April 2016, regardless of the value of their pension savings on that date, which means that if their pension pot gains value, they will not be subject to the lifetime allowance charge unless the value is greater than £1.25 million. Individual protection 2016 is intended to help those who would not be able to receive their employer contribution as additional income if they stopped saving into their pension scheme. Individuals applying for individual protection 2016 will have a protected lifetime allowance equal to the amount of any pension savings they had on 5 April 2016, subject to an overall maximum of £1.25 million. Individuals will be able to apply for both individual and fixed protection 2016; when they hold both, fixed protection 2016 will take precedence. These protections are intended to ensure that the reduction of the lifetime allowance does not inadvertently advantage or disadvantage certain individuals.
In conclusion, the Government believe that this approach is a fair and balanced way to reduce the cost of pensions, tax-free; indeed, it is estimated that the measure will save almost £2 billion by the end of this Parliament. In addition, it limits the benefit that the wealthiest pension savers can receive, while maintaining fairness between people retiring now and people retiring in the future.

Rob Marris: Oh, I do wish I could declare an interest in this clause.
We welcome the transitional protections—the fixed protection and the individual protection—and, indeed, the clause’s overall architecture. Schedule 4, though—not many of us are that technical about this stuff, but schedule 4 runs to 17 pages. Talk about complexity in the tax regime!
On the overall approach, I am delighted that the Government are moving in a direction that I urged on the Labour Government back in 2002, when the forgone revenue was £18 billion a year, from memory—it was £17.6 billion in 2001, as the Minister said—first because the pension tax regime is very regressive and secondly because there was no evidence then that that tax relief encouraged people to save for pensions. Earlier this year, I checked with the Library for an update on the situation, and it could find hardly any evidence that the forgone tax revenue, which is now £34 billion per year, encourages the very behaviour it is intended to encourage. It is probably the biggest single tax relief in the whole tax regime; it is regressive; and it does not do what it is intended to do. This pottiness continues, though clause 19 and schedule 4 make some welcome steps in the right direction.
I have a more minor point, connected to HMRC’s cuts in staff numbers—although those have increased a bit—and its unfortunate proposal to close a whole load of offices. The tax information and impact note published on 9 December 2015 estimated that the additional cost to HMRC of administering and monitoring the protection regimes would be £2.4 million for IT and—get this—£500,000 for staff resources over a five-year period. On average, that is £100,000 a year in extra staffing costs due to the protection regime.
Perhaps the Minister can assure me that I am misinterpreting the situation. If not, HMRC is living in a different world. As he pointed out, 4% of individuals might be caught by having a pension pot approaching or exceeding £1 million, and therefore might face the protection regime, whether fixed or individual. That 4% of pensioners is not just a whole lot of people, but people with around £1 million in their pension pot. They are likely to be some of the most educated and articulate pensioners, or prospective pensioners, and are certainly some of the most prosperous. I may be misinterpreting this, but does HMRC really think that an average of £100,000 a year in additional staffing costs will deal with the protection regime, the queries arising from it and so on? How will that 4% of pensioners or prospective pensioners who are likely to raise queries, quite properly, with HMRC be dealt with on £100,000 a year?